Do you also have to pay taxes when buying coffee with Bitcoin? Cato Institute: The U.S. cryptocurrency tax system is unrealistic

The current U.S. tax system treats Bitcoin as property rather than currency, causing every transaction to require reporting capital gains. Think tanks say that for everyday payments, costs and market value must be recorded in detail, and the cumbersome process turns into a tax-filing nightmare.

Bitcoin payments become a tax nightmare; a think tank says the current tax system is rigid

The current U.S. tax framework is a major obstacle to the widespread adoption of Bitcoin ($BTC). A researcher at the Washington think tank Cato Institute, Nicholas Anthony, points out that the current Bitcoin tax collection mechanism lacks rationality.

Image source: X/@EconWithNick Nicholas Anthony, a researcher at the Cato Institute in Washington, says the current Bitcoin tax collection mechanism lacks rationality

On the technical side, paying with Bitcoin is extremely convenient, but the IRS’s capital gains tax rules turn simple transactions into a heavy legal and paperwork burden. Under current regulations, each Bitcoin transaction is treated as a disposal of an asset. Even when a consumer buys a cup of coffee, they must record in detail the acquisition date, cost basis, and market value in order to calculate gains or losses.

The frequent transaction reporting process places immense pressure on users. If one insists on using Bitcoin to buy coffee every day, the tax-filing season may require filling out more than 100 pages of reporting documents. These data must be listed in “Form 8949” and then aggregated into “Schedule D.” Such cumbersome record-keeping requirements run counter to the original intent of using currency as a medium of exchange. In addition, even minor record-keeping errors may trigger audits or penalties. The resulting ongoing legal pressure leads Americans to treat Bitcoin as “digital gold” for long-term holding, reducing everyday spending.

Tax burdens distort currency attributes; holding preferences suppress payment potential

At a fundamental level, the current tax structure distorts Bitcoin’s utility by turning a potential payment medium into a purely investment asset. Capital gains tax was originally intended to incentivize long-term investment, but when applied to highly liquid currencies, it creates a severe disincentive effect. When users realize that they must trace complex purchase costs for every spend, they naturally choose to hold rather than use.

This tax bias suppresses market competition, and the government also intervenes—without being seen—in the currency’s natural development. A 2025 survey by the U.S. National Cryptocurrency Association shows that although 39% of holders are willing to use digital assets for payments, the tax burden remains the main obstacle to entering the payment industry. Bitcoin’s price has stayed at a high around $74,500 in April 2026. With sharp fluctuations in asset value, calculating the cost basis for every tiny Satoshi is extremely difficult.

Although around 11,000 merchants worldwide accept Bitcoin, the U.S. IRS classifies it as “Property” rather than “Currency,” preventing the payment ecosystem from entering the mainstream market. Current tax policies have changed the way people use Bitcoin, shifting the originally envisioned “peer-to-peer electronic cash system” into nothing more than a tool for capital speculation.

Washington policy wrangling continues; international tax reform trends emerge

Debate over cryptocurrency tax regimes continues to heat up in Washington. White House Press Secretary Karoline Leavitt said the president supports introducing a “de minimis exemption” clause, aimed at simplifying crypto payment processes so that they are as easy as buying coffee.

Image source: The White House White House Press Secretary Karoline Leavitt says the president supports introducing a “de minimis exemption” clause to simplify crypto payment processes

However, in recent years the IRS has tightened reporting requirements, increasing compliance costs and reflecting a contradiction between regulators and policy objectives. Internationally, countries differ significantly in how they define digital assets. The ruling party in South Korea has proposed abolishing digital asset taxes to avoid double taxation disputes and reduce the difficulty of oversight.

Anthony has proposed multiple reform options, recommending removing government interference in currency competition. Fully eliminating capital gains tax on cryptocurrencies could allow market competition to determine which currencies are superior, or a foreign-currency model could be used to provide exemptions for everyday payments. Although the Virtual Currency Tax Fairness Act proposes a tax exemption for transactions under 200, this threshold no longer reflects modern consumption patterns. It is suggested that higher limits be set based on the average level of U.S. household spending, thereby unleashing the circulation potential of digital assets.

Digital assets urgently need regulatory easing to reshape the United States’ financial competitiveness

For the U.S. to maintain competitiveness in the digital financial industry, simplifying tax regulations is a must. The current system leaves law-abiding citizens frustrated and also hampers financial innovation. Congress should ensure that ordinary Americans can easily meet their tax obligations. Only if the tax system stops becoming a barrier to use can Bitcoin demonstrate its value as a new form of currency.

With the arrival of the 2026 tax season, policymakers are being reminded to reconsider—taxation should serve as a foundation for how the country operates, not a shackle on new technology development. Right now, every small purchase turns into a legal maze, and this situation urgently needs to change.

By easing regulations, digital assets can shift from being mere investment assets to truly vibrant circulating currencies. The government should shift its policy focus toward improving financial efficiency, and inject new momentum into overall economic competitiveness through a more inclusive tax system. Only by eliminating excessive administrative burdens in the compliance process can the U.S. continue to maintain its leadership in the rapidly evolving global cryptocurrency market.